Eikon outages add pressure on LSE over Refinitiv challenges - FT

The message that Eikon was down had in recent months become a wearily familiar one for thousands of traders, fund managers and analysts.

For the LSE, which paid $27 billion for Refinitiv, the initially rapturous reception from investors has given way to a more sober examination of the challenges LSE chief executive David Schwimmer faces in making the biggest deal in the company’s recent history pay off.

“A fitful service at Eikon is not the only headache,” the FT said. David Craig, the former head of Refinitiv whose importance the LSE highlighted in its prospectus for the deal, is stepping down in July. Refinitiv is also embroiled in a dispute with news provider Reuters over an unusual three-decade long contract costing $325m a year.”

Schwimmer will have the chance on Friday to dispel concerns when the LSE holds an event designed to educate investors about Refinitiv.

He insists that the past four months since the LSE took official control of Refinitiv after a protracted probe of the deal by European competition regulators offer little cause for concern, pointing to a five-year integration plan.

“I see the last several months as ones in which we’ve made great progress,” Schwimmer said in an interview. “We’ve refinanced our debt. We made clear to the market and our shareholders that we are investing in the business to drive growth,” the FT said.

It was a warning in early March, however, that the bill for integrating Refinitiv would be heftier than expected that first took some of the gloss off the deal. LSE shares suffered their worst one-day drop in more than two decades.

Given that Refinitiv commanded twice the revenues of the LSE and roughly four times its workforce, some employees at the group believed it would dominate the combined company.

"Craig, a 51-year-old Brit, had intended to speed up decision making at Refinitiv and extend that approach to the LSE, according to two people with knowledge of his plans. For his part, Schwimmer has put the focus on IT integration this year and laid out cuts in overlapping senior leadership roles.”

The relationship between the men has remained cordial, the people said, but Craig prepared for his departure by hiring his successor, former Bloomberg executive Andrea Stone.

“It was Craig’s own frustrations at a lack [of] investment from Thomson Reuters, Refinitiv’s owner for the decade after the financial crisis, that led him to help engineer the $17.3bn sale of the group to a private equity consortium led by Blackstone in 2018. Within 18 months the consortium had sold the business to the LSE, though it retained a 29 per cent stake.”

As equity and bond markets have enjoyed a historic bull run it is Bloomberg rather than Refinitiv that has been the winner. Bloomberg’s share of the market for supplying data and analytics to the financial services industry held at 33 per cent in 2020 as Refinitiv’s slipped to 19.4 per cent, according to Burton-Taylor Consulting International.

Before the takeover, Refinitiv had finished a $650 million cost-cutting operation that eliminated jobs in expensive cities such as London and New York while shifting some product development to China. More functions have been outsourced to Indian IT services group TCS.

“As the more than 300-year-old company tries to wring costs from the business, Refinitiv’s contract with Reuters is emerging as a significant obstacle. It adds up to a financial liability in excess of $9bn, with the annual payments from Refinitiv amounting to more than half Reuters’ revenues.

“Alessandra Galloni, the recently appointed Reuters editor-in-chief, has described the contract as ‘the envy of the media industry’, a historic alliance providing a stream of guaranteed income.

“Yet the unorthodox terms, struck when Thomson Reuters sold Refinitiv to the Blackstone-led consortium, has put the partnership between the data provider and news service under considerable strain.

“Even before the LSE takeover, Refinitiv had raised concerns with Reuters over its news output, according to people familiar with the discussions. Reuters has won prestigious Pulitzer prizes in recent years, but was notably five hours slower than Bloomberg in reporting the Suez Canal being blocked, a vital story for Refinitiv customers.” 

Refinitiv has struggled to secure what it wants from Reuters with a contract that only includes vague performance indicators, such as the error rate and number of breaking news snaps, the FT said. “Attempting the more ambitious step of reducing payments would be even harder.”

The differences spilled into public last month when Refinitiv objected to Reuters plans to introduce a paywall for its news website, arguing it would cause it “irreparable harm”. Refinitiv warned that the move risked cannibalising its own sales while also undermining the exclusive right it has to resell Reuters’ news output.

“It forced Reuters into a humiliating retreat, with the launch of the paywall postponed until the differences are resolved.” In a joint statement, Reuters and Refinitiv said that “the foundation of our partnership is strong”.

“Just as with any commercial agreement, there are ongoing and private discussions about our business approach and products.”

The paywall clash might ultimately prompt a bigger reappraisal of the partnership and how it operates, according to people familiar with the matter. “The contract is a millstone around [Refinitiv’s] neck”, said one person with knowledge of the negotiations. ■